The Endangered Species, Entrepreneurs, a.k.a. Small Business Owners
President Obama is disingenuous when he says he is championing small business and the middle class. Most small business owners are Sole Proprietors, Limited Liability Corps (LLCs) or Sub S Corps. I own a Sub S Corp. President Obama knows the challenges I face. He is counting on you, the voter, to lump small business owners like me into his campaign to denigrate the high income earners in this country.
What he doesn’t want you to know is small business people, like me, often take a lesser salary, but often earn more than his definition of “rich” because I have to pay taxes on the combined total of my salary and my business earnings. Both are considered ordinary income. By ordinary income, I mean income you and I pay taxes on after pre-tax expenses and deductions, like anyone else earning 1099 or W-2 income.
Keep in mind the risk to a small business owner. If my business loses money, my salary and my business is in jeopardy. It is a constant challenge to a small business to earn enough money to employ people, to grow and still earn a salary, in that order. Contrast that with government subsidized businesses like GE and Solyndra. Imagine if President Obama had the vision to subsidize small businesses to the tune of Solyndra or GE. Take Solyndra’s $500 million in taxpayer dollars and give it to 500 small businesses, each with 20 employees or the equivalent of 1,000 employees. Take my company’s track record over the past 2 years and small businesses would have increased employment by 40%. I have a neighbor down the street who owns a small business, who increased his small business employment by 3-400 percent, without a government subsidy.
I run a small business, going on 25 years. I pay taxes on my salary as an employee of my business and on the income my small business earns, both as ordinary income. For many years, my business didn’t earn income. For many years, my salary was well below the poverty line. There were many years I was eligible for government assistance and I refused to take it.
How do you put a price on all the sacrifices a small business owner makes? How do you quantify the years of no or little income you live with while supporting your business and fellow employees. You pay their salary, you pay suppliers, you continue to pay them while you wait to get paid by your customers. How do you quantify the debt you assume, including 2nd mortgages, credit cards, personal and bank loan. How do you quantify the risks you take only to emerge from that debt as a job creator. Only to be told, “You didn’t build that…,” the government built that.”
My business is classified as an S Corp. Today my income tax rate on ordinary income in an Obama administration in the next four years will be much higher, 35 – 44.5%. Today it’s 28%. From that point forward you can make the argument there are tax breaks, subsidies, deductions for both personal and business income.
Argue the advantages and disadvantages until the cows come home. The bottom line is the effective tax rate. The effective tax rate for most small businesses will increase from 28% to at least 35% . That’s huge. Even more significant, more important and what President Obama doesn’t want you to know is most small businesses reinvest the income they earn from their business back into their business on sales and marketing programs and personnel and consequently accounts receivable to grow. This practice creates jobs in all segments of the business. In my case, I reinvested one-half (1/2) my ordinary income in jobs and other current and performing assets, increasing employment (salaries by over 40 percent) in 2012 YTD alone.
What the Obama administration doesn’t want you to know about small business tax rates, is we pay taxes on ordinary income both on our salaries and on the money our business makes. As a rule of thumb, a small business owner will take one-half (1/2) of their income as salary and they will reinvest the other one-half (½) of their small business income back into their business. The small business investment I’m talking about isn’t about capital investments in equipment, furniture and other fixed assets. The investment I’m talking about is in operating income, including people, sales and marketing, accounts receivable which is the fuel the economy needs to grow. Operating income comes from small business revenues taxed as ordinary income.
In fact, even large corporations in America pay much higher corporate tax rates than most other countries. Our higher corporate tax rates are supported by the Obama Administration. A Romney administration would propose to lower corporate tax rates to be more competitive with other countries we compete with for business. The irony is Obama touts green energy and competing for high tech business but he will do nothing to lower the unfair advantage international competition has because their tax rates are much lower.
Here are the facts…
On taxes, President Barack Obama wants to raise “the top rate to 44.8 percent.”